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Beyond the Fiscal ‘Cliff': Remaking Federalism for Results

Neal Peirce / Dec 06 2012

For Release Sunday, December 9, 2012
© 2012 Washington Post Writers Group

Neal Peirce“Just dealing with the fiscal cliff isn’t enough,” asserts Mark Muro of the Brookings Institution. “That just looks inward at existing programs, maybe cutting some inefficient or wasteful ones.” To restoke the national economy, Muro contends, today’s smart new opportunity is to look outward, to “encourage and stimulate the best economic initiatives that metro areas and states are trying across the country.”

That demands a radical but possible switch, Muro and his colleague Bruce Katz of Brookings’ Metropolitan Policy Program insist. It means a federal government that moves quickly past the “mindless mathematical exercise” of “deficit targets, budget tricks and across-the-board cuts.”

The bigger goal? It’s described as a smarter approach that trims today’s billions of federal grant outlays and tax subsidies for consumption-oriented activities — the home mortgage deduction is a prime example. And then it uses a portion of the revenue saved for a range of targeted investments to build an America that’s export-oriented and competitive in the new global economy.

But those investments, the Brookings crew insists, shouldn’t be dreamt up by Congress or cumbersome federal bureaucracies. They note that in America (and around the world), “sub-national actors” – cities, regions and states – are becoming this century’s key innovators.

Leading U.S. examples are moves to open an advanced applied sciences center in downtown Brooklyn, advanced manufacturing alliances in Northeast Ohio, bold transit extensions in Los Angeles and Denver, the Seattle and Philadelphia metro areas cementing their niches in energy-efficient technologies, and Connecticut and other states starting “green” banks to help deploy clean technologies at scale.

For decades, state and cities have fished for (and too often subsidized) footloose industries with cash awards, free land, low taxes and worker training – a practice that now costs taxpayers a stunning $80 million yearly, the New York Times reports. But now there are signs of a new era, as selected states and metros move to a 21st-century focus on export promotion, foreign direct investment and skilled immigration.

And there’s plenty of room for Washington to provide incentives for the shift. The General Accounting Office identifies some $400 billion in annual federal spending on wasteful, inefficient or duplicative programs. So the Brookings scholars advise “cut to invest” – first trim existing spending and tax subsidies, then use the savings for deficit reduction and to pay for high-priority investments for the country’s economic future.

Could this be a new model of catalytic government, working by incentives, then partnerships, with less intrusive rules and regulations? Maybe federal support for a network of perhaps 25 regional advanced manufacturing innovation hubs? Or support designation of 20 or more manufacturing universities?

Those are ideas Muro and Katz pose for debate. The achievable goal, they claim: to “empower metropolitan-area partners, their states, and the private sector, and so unleash new creativity and problem-solving.”

That does raise a question: Who chooses the beneficiary regions and recipients, and how? How to avert favoritism?

The good news here is that the Obama administration, in its first term, began inventing a new federal model: response to local initiatives. The White House’s highly competitive Sustainable Communities and “TIGER” transportation grants broke the mold of Washington-decreed, heavily regulated programs. Cities and metro areas were invited to put together their own partnerships and projects for interconnected housing, transportation and environmental initiatives. Officials from the federal departments met to pick the most promising proposals for assistance.

The same model could clearly work for an ambitious round of economy-stimulating models conceived by communities working on a metro basis, or perhaps entire states.

The idea, say Katz and Muro, is “catalytic government: government by incentive, government through partnership … doing less by reducing intrusive rules.” The achievable goal, they claim: to “empower metropolitan-area partners, their states, and the private sector, and so unleash new creativity and problem-solving.” The idea is to create a system in which economic initiatives are “increasingly ‘co-developed’ with cities, counties, metropolitan economic organizations, state governments and the private sector.”

But how to get Washington to break with its old ways and consider such a radically new model as a central focus for economic revitalization?

A promising approach was raised at a Brookings conference in late November: Ask a group of governors – perhaps as early as this winter – to take up the cause and press it with the Obama administration and congressional delegations. The governors are logical proponents because most of them tend to be pragmatists, almost all focus on economic development and unlike Congress they aren’t tied to existing federal grant programs. Right now they’re mostly Republicans (30 of the 50) – possibly a good match to work with a Democratic president and a Congress with split party control.

Is there a chance for some creative bipartisanship here? A welcome relief from cliff-hanging? Let’s hope so!

Neal Peirce’s e-mail is

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One Comment

  1. Marc Brenman
    Posted December 7, 2012 at 5:34 am | Permalink

    Alas, when “intrusive rules” are cut, it’s usually the most socially disadvantaged who get the shaft, because “intrusive rules” is often a code-phrase for workers’ rights, anti-discrimination, minimum wage, and environmental protection. Katz and Muro probably didn’t mean it this way, but that’s the dog whistle the phrase means in conservative-ville.

    Second, cutting the home mortgage deduction means cutting one of the few middle class tax shelters left. Once again the middle class catch it in the neck.

    Third, the always-mysterious “waste” found by GAO (the Government Accountability Office, Neal; I made the same mistake; shows our age) is never actually found. Every President looks for it and can’t find it.

    Fourth, reduce federal grant programs? Like education? Defense? Emergency management? There’s no guarantee that local and state government will do better; remember, local folks are the ones who turn out to oppose planning because it’s “Agenda 2″ and accompanied by the UN’s black helicopters and the mayor of New Orleans who refused to order an evacuation in Hurricane Katrina and the school boards of Kansas that want to ban evolution. There’s no special virtue in being local. State officials are also the ones who shipped 2000 US jobs to China to fabricate steel parts for the new SF Bay Bridge, and buy wind turbine blades made by GE of Brazil.

    Here’s a good start for those “pragmatic” governors: Set an example. The state of New Mexico is sunny 84% of the time, yet solar energy is almost unused there. Take the entire state off the decrepit electrical grid. Another example: require wind turbine parts to be made in the US. Another example: In future federal stimulus programs, rebuild the antiquated electrical distribution system. Put broadband everywhere in the US. With US parts.
    You really want to reduce intrusion by the federal government? Decriminalize marijuana and tax it like tobacco and alcohol. It’s already the biggest agricultural crop in California, Oregon, and Washington State. And cut farmer subsidies for other crops, not home mortgage subsidies.